Regulatory Matters

9 Months Ended

Sep. 30, 2019

Regulatory Matters [Abstract]

Regulatory Matters

Note 4 -  Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, federal bank regulatory agencies issued final rules to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). On January 1, 2015, the Basel III rules became effective and included transition provisions which implement certain portions of the rules through January 1, 2019. Under the final rules, the effects of certain accumulated other comprehensive income items are not excluded, however, banking organizations like us that are not considered “advanced approaches” banking organizations may make a one-time permanent election to continue to exclude these items. With the submission of the Call Report for the first quarter of 2015, we made this election in order to avoid significant variations in the level of capital that can be caused by interest rate fluctuations on the fair value of the Bank’s AFS securities portfolio.

The Basel III rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition. The new rule will take effect on January 1, 2020.

As of the date of the last regulatory exam, the Bank was considered “well capitalized” and as of September 30, 2019, the Bank continued to meet the requirements to be considered “well capitalized” based on applicable U.S. regulatory capital ratio requirements.

The Bank’s regulatory capital amounts and ratios were as follows:

					Minimum				Minimum				To be Well
					Requirements				Requirements				Capitalized Under
					for Capital Adequacy				with Capital				Prompt Corrective
	Actual				Purposes				Conservation Buffer				Action Provision
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2019	(dollars in thousands)
Common Equity Tier 1 Capital (to risk-weighted assets)	$	120,432	18.5	%	$	29,256	4.5	%	$	45,509	7.0	%	$	42,259	6.5	%
Total capital (to risk-weighted assets)		127,839	19.7	%		52,011	8.0	%		68,264	10.5	%		65,014	10.0	%
Tier 1 capital (to risk-weighted assets)		120,432	18.5	%		39,008	6.0	%		55,261	8.5	%		52,011	8.0	%
Tier 1 capital (to average quarterly assets)		120,432	13.5	%		35,652	4.0	%		57,935	6.5	%		44,565	5.0	%
December 31, 2018
Common Equity Tier 1 Capital (to risk-weighted assets)	$	114,749	17.4	%	$	29,651	4.5	%	$	42,006	6.4	%	$	42,830	6.5	%
Total capital (to risk-weighted assets)		122,889	18.7	%		52,713	8.0	%		65,068	9.9	%		65,892	10.0	%
Tier 1 capital (to risk-weighted assets)		114,749	17.4	%		39,535	6.0	%		51,890	7.9	%		52,713	8.0	%
Tier 1 capital (to average quarterly assets)		114,749	13.5	%		33,932	4.0	%		49,838	5.9	%		42,415	5.0	%